October 26, 2011
Exit planning is a complex process for business owners to undertake. Your ultimate goal is to ensure that you leave your business when you want to, with the cash you need and with the lowest possible tax implications. But even that is an over-simplification of what it takes to achieve your ultimate goal.
First and foremost you need to grow your business to be a solidly successful firm worth what you want in return for a sale or transition. And that’s where most entrepreneurs and business owners get consumed, increasing volume and sales and profits today.
To look at the long term viability of the business and the business model you’ll need in place to sell it, does take time and effort. Too often business owners/entrepreneurs let this part slide, as they stay immersed in working the plan for today, hitting the targets for this year. The self-imposed risk at this point is being too short-sighted, and getting to a point that you are burnt out, bored, or not healthy enough to continue, and want to exit in the next 90 days. That’s how most business owners are short-changing their future and their business goals.
It doesn’t have to be that way.
Exit planning like financial planning has a learning curve. The more lead-time you have, the more options and lower risk options available to you.
Exit planning is the strategic long-term integration of a number of systems and processes over time. Your exit planning process must incorporate:
- the business plan (present and future strategies for the business),
- your contingency plans to protect the business (which evolve as the company grows),
- your succession plan (in terms of who will take which responsibilities as well as how you groom them for those roles), and
- your personal transition plan (your timeline, cash requirements, pursuits, and destination).
In parallel, you will need licensed experts to put certain exit planning pieces in place. These pieces include:
- Estate planning, business legal planning, legal due diligence, drafting legal agreements
- Tax planning and accounting due diligence for any exit transaction
- Financial planning for investment advice based on your exit plan, timeline, wealth preservation and tax exposure
- Insurance planning (if appropriate) to issue any relevant insurance contracts as part of the exit strategy.
There are a lot of details to this exit planning puzzle. Here’s why it’s worth it for you to start putting the puzzle together now:
- Control and peace of mind
- Design your exit strategy to achieve every goal you set for the business and the lifestyle of your dreams
- Lead time of 3-5 years expands your options
- Putting all these systems in place along the way increases the market value of the business, making it easier to sell on your terms
- You have time to cull and screen the best advisors who will work well together on your behalf.
- You can take a strategic approach to your exit strategy instead of working in silos on the tactics each advisor brings you.
- Starting early means you can invest regularly scheduled small amounts of time to work through the whole process over a period of years – with no negative impact on day to day operations.
Goal Achievement & Exit Planning Strategist